The journey to becoming a publicly traded company is often long and arduous. It can take in excess of six months to fully prepare for flotation and costs can run extremely high. In order to take a business public, there are a number of steps you need to take. Here, James Regan Partner in our Commercial Department simplifies and streamlines these in an attempt to make the process more immediately accessible.
1. Choose your market – In the UK, there are two main markets. These are the London Stock Exchange (LSE) and the Alternative Investment Market (AIM). The second of these two markets is for smaller, growing businesses.
2. Hire your advisors – If you haven’t done so already, it’s necessary to hire advisors who are registered with the market’s relevant regulatory board. You will also require lawyers and auditors.
3. Prepare to float – This involves ensuring the company structure is suited to your chosen market, that your accounts meet the appropriate standards, and that all relevant paperwork and information has been collected.
4. Price your business – The price of the public offering will largely depend on your historical earnings and future growth expectations. You can lower the price to ensure a successful flotation, or stick with a higher evaluation if you’re particularly confident about the value of your business.
5. The final stages – Towards the end of the process, a prospectus needs to be created in order to sell the business to prospective investors. It’s also necessary to decide what type of shares you want to offer.
When is it a good time to float?
It can be extremely difficult to know when it’s time to take your company public. There’s a lot to consider and business owners need to be sure they’re making the right decision before they float the company. Below, we’ve listed five factors that should indicate that you’re ready to go public.
1. If your business demonstrates strong earnings growth or has the potential for quick growth in the near future.
2. When your organisation is well established, stable, and prepared for the enormous changes that will result from the company going public.
3. When the business is ready to increase its cash flow, pay off debts, and fund further growth. Floating a company on the stock exchange typically occurs because the owners desire an injection of cash and further investment in the business.
4. You have a firm business plan for ensuring growth and giving investors a return on their investment.
5. The business is in a secure enough financial position to cover the costs of going public. It can be an expensive process.
When shouldn’t you float?
Just because your business has been growing and expanding for many years, doesn’t mean it’s ready to be floated on the stock exchange. Going public is an incredibly demanding process that requires determination and dedication on behalf of all company employees if it’s to succeed. If your business meets any of the following criteria, you may want to reconsider going public:
• You are not prepared for the increased amount of work relating to regulatory compliance, disclosure procedures, and shareholder reports.
• The business may not attract sufficient investment to warrant it being floated on the stock exchange.
• The organisation is not secure enough to handle the disruptions to cash flow and board control that may result from it being taken public.
• There is not enough to differentiate your business from the competition. A successful public offering is usually dependent on a business benefiting from a unique product or selling point.
The decision to go public should not be made lightly and a great deal of legal and financial advice should be sought before the process is begun. While floating a business is often considered evidence of financial success, this is not always the case and companies should not just naturally assume it’s the logical next step or the right thing to do.